LexisNexis(TM) Academic - Document

LexisNexis(TM) Academic - Document
Copyright 2005 The Financial Times Limited
Financial Times (London, England)

June 29, 2005 Wednesday
Asia Edition 1

SECTION: FRONT PAGE - FIRST SECTION; Pg. 1

LENGTH: 489 words

HEADLINE: China to narrow gap on audit rules

BYLINE: By FLORIAN GIMBEL and BARNEY JOPSON

DATELINE: LONDON and HONG KONG

BODY:


* Move will bolster trust in corporate information

China has pledged to narrow differences between its own accounting standards and international norms, a move that might help bolster investor trust in corporate information from the fast-growing economy.

Wang Jun, assistant minister for finance, said yesterday that China would "actively promote and accelerate" an effort to bring the country's rules into line with international accounting standards introduced across the European Union this year.

The move raises the prospect of an improvement in the transparency of Chinese accounts, with financial statements produced in a form that foreign equity and business investors can understand more easily.

But attempts to upgrade Chinese standards are likely to face several barriers.

"Convergence of international financial reporting standards and audit standards has become an inevitable trend," said Mr Wang, speaking at a London conference held by the Institute of Chartered Accountants in England & Wales. "Convergence will make it easier for investors to compare different investment opportunities."

Chris Ruffle, investment director at Martin Currie Investment in Shanghai, said: "As a firm, we are not too impressed by (Chinese companies') published figures, which is why we need to go out and see the companies in which we invest."

But he added: "We won't see the benefits of the (accounting) reform in the short-term, because China is still suffering from a shortage of trained accountants." Chinese blue chips with listings in Hong Kong and New York already report under US or international accounting standards.

Mr Wang yesterday met officials from the International Accounting Standards Board, which is planning to send a convergence team to China in November. Sir David Tweedie, chairman of the IASB, welcomed the announcement, but said China had "particular problems" that "quite frankly don't exist anywhere else".

International accounting standards require companies to report assets and liabilities at "fair value" - a market price or a close approximation. In China, Sir David said, that was often impossible. "How do I deal with fair value when a share is traded in Shanghai and Hong Kong with prices that are one-third different?" It was also unclear how Chinese companies would account for assets whose prices were determined by the state.

Sir David said the IASB might allow supplementary financial notes to explain such differences. But he reiterated that accounting standards should not diverge when the underlying economics are the same.

That could conflict with an approach outlined by Mr Wang, who said convergence did not mean standards should be identical. "Countries differ in economic environments, legal systems, cultural philosophies, regulatory structures, users of accounting information and quality of accountants," he said. "Without paying due attention to national situations we can hardly achieve convergence."

LOAD-DATE: June 28, 2005